On 15 June 2020, a Programme for Government was published by Fianna Fáil, Fine Gael and the Green Party entitled “Our Shared Future” (Programme). The key proposals on pension policy within the Programme include:
1. State Pension Age to remain at 66 (for now)
Under current legislation, eligibility for the State pension is due to increase from age 66 to 67 with effect from 1 January 2021 and then to age 68 in 2028. Opposition to this planned increase in the State pension age became a key issue during the general election earlier this year. This has resulted in the Programme confirming that the State pension age will remain at 66 for the moment.
The increase to 67 next January will be deferred pending a report on the issue by a Commission on Pensions, which will be established to examine various issues related to the sustainability of and eligibility for the State pension. The Commission is due to report on its recommendations in June 2021 with the government committing to act on those recommendations within six months.
The Organisation for Economic Co-Operation and Development (OECD), in its 2014 review of the Irish pension system, identified that public spending on the State pension system would increase substantially in the years ahead due to demographic changes. To enhance the sustainability of the State pension system, the outgoing government proposed that further changes in the State pension age after 2035 would be linked to increases in life expectancy.
We will have to wait until next year to see what reforms the Commission on Pensions recommends. However, the sustainability challenges facing the existing State pension system will still need to be addressed, despite the deferral of next year’s planned increase in the State pension age.
2. Early Retirement Allowance
One of the main drivers behind the opposition to the planned increase in the State pension age is the contractual requirement for many employees to retire at age 65. A large cohort of these retirees find themselves forced to ‘sign on’ to access jobseekers’ benefit for a year before becoming entitled to the State pension.
The Programme seeks to address this concern by removing the requirement for such retirees to sign on and providing them with an “Early Retirement Allowance or Pension”, albeit at the same rate as the jobseekers’ benefit.
The outgoing government’s auto-enrolment proposal also features in the Programme, but there is no date set for its intended introduction. Instead, the new government will seek to “gradually” deliver auto-enrolment taking account of the “exceptional strain both employers and employees are now under”.
Impact on Trustees and Employers
In the near term, the policy change that will have an immediate, practical impact for pension schemes and employers, if implemented, will be the deferral of the increase in State pension age.
Some pension schemes and employers have aligned the retirement age for their members and employees with the planned increase in State pension age next year. Those arrangements will now need to be reconsidered by trustees and employers if those employees will be able to access the State pension a year earlier than anticipated. For defined benefit schemes, this change, if implemented, also has the potential to result in an increase in liabilities where normal retirement age for members is linked to the date of eligibility for the State pension.
There are also employment law implications for the contractual retirement age chosen by certain companies. A small but increasing number of employers define their contractual retirement age as being the age at which the State pension is payable. Employers might now find themselves losing an experienced staff member to retirement one year earlier than expected, or employees of those companies might now find themselves forced to retire a year earlier than expected. It is important to note however that legislation still requires the employer to objectively justify whatever contractual retirement age it has chosen.
The absence of a timeframe in the Programme for the introduction of auto-enrolment casts doubt over when it may be implemented. A lot of good work has gone into the design and planning of an auto-enrolment system for Ireland. It would be disappointing if that proposal is delayed or postponed indefinitely due to the current uncertain economic outlook employers and employees now face.
— to www.lexology.com